Pension Law Guts 40 Years of Policy

Posted on December 07, 2015

Oddly, or not, “progressive” and Democratic loyalist commentary on the Cromnibus bill has — with occasional honorable exceptions —focused almost exclusively on Elizabeth Warren’s fight against a derivatives provision that might benefit big banks.

[But it has] been silent about a provision that could do far worse and far more immediate harm to working people who made their retirement plans based on the belief that their pension rights were secure and backed by legislation, and the idea that a contract was a contract. Oldthink, I know!

So in this post I want to rectify that mysterious silence, and take a look at the truly nauseating Kline-Miller amendment, passed by the House, and part of the Senate bill forwarded to Obama for his signature. David Dayen summarizes:

Under the bill, trustees would be enabled to cut pension benefits to current retirees, reversing a 40-year bond with workers who earned their retirement packages.

Under ERISA, the 1974 law governing pensions in the private sector, benefits already earned by a worker can’t be cut.

Now they can. That’s right. Even if you’re retired and vested in a private pension plan, your benefits could be cut. Congress retraded the deal (if I have the finance jargon right). That’s nauseating even for today’s official Washington. And the bill was passed in a thoroughly bipartisan fashion: Kline is a Minnesota Republican, and Miller is a “liberal” California Democrat. [Reach me that bucket, wouldja?]

Who Does Kline-Miller Affect?

I said your pension could be cut, so here’s how Kline-Miller works and who it applies to. (I don’t have a pension and I’m not a union guy, so bear with and correct me.) Politico:

The House Rules Committee added the Kline-Miller amendment to the $1.1 trillion omnibus spending bill last night. The measure would give multiemployer pension trustees the option to cut vested benefits in order to save plans headed toward insolvency and would increase insurance premiums to the financially troubled Pension Benefit Guaranty Corporation (PBGC).

It works like this: Trustees submit an application of proposed benefit suspensions to the Treasury Department. The Treasury Department consults with the Pension Benefit Guaranty Corporation and the Labor Department before approving the application. Following Treasury approval, participants vote on the proposed cuts. If more than 50 percent of participants disapprove, trustees can’t make the cuts. There’s a loophole, however: If the Treasury, the Labor Department and the PBGC determine that the plan would cost the PBGC more than $1 billion [That’s not even real money these days!] upon becoming insolvent, trustees can still implement the cuts.

[M]ultiemployer pension plans are generally negotiated by a union to cover employees of all companies in a given industry. About 1,400 such plans cover about 10 million workers, according to the Pension Rights Center. About 150 to 200 of the plans, covering 1.5 million workers, are seriously underfunded and could run out of money sometime during the next 20 years.

Wait, you say. 1.5 million workers isn’t very many, and besides, I have a single employer pension, and so I’m safe from the chopping block. Not so fast! What matters is that a precedent has been set. The Wall Street Journal is practically rubbing its hands:

[The] measure included in Congress’s mammoth spending bill permits benefit cuts for retirees in one type of pension plan, a big shift that lawmakers and others believe could set a precedent for other troubled retirement programs.

Lawmakers and experts, while divided over the merits of the change, largely agreed that it could well be the first of many.

Alicia Munnell, director of Boston College’s Center for Retirement Research says the change:

“is letting the genie out of the bottle. Once it becomes legal to cut accrued benefits, then it’s a different world. It’s really precedent-making change. [While not opposed to giving trustees flexibility, she said] “It needs to be applied very, very judiciously.”

What could go wrong? The bottom line here is that the legalities and the contractual relations and whatever moral commitments were made don’t really matter. What does matter is that whenever there’s a big pot of money lying around that theoreticallly should go to working people — say, retirement funds, but it could be anything — Congress can retrade whatever deal put the money into the pot, and years after the fact, too. Oh, and workers lose the right to challenge the cuts in court. Nice!

Why Is Kline-Miller Wrong?

The big problem here is that the plan fails to put retirees at the head of the line for protection. When changes of this type must be made, they should be phased in over a long period of time, giving workers time to adjust their plans before retirement. For example, the Social Security benefit cuts enacted in 1983 were phased in over 20 years and didn’t start kicking in until 1990.

Second, giving workers no time to adjust is all the more egregious, because Kline-Miller was rushed through, even though there was no crisis. Pension Rights:

According to PBGC projections, approximately 150 to 200 plans, covering 1.5 million workers and retirees, could run out of money within the next 20 years.

A problem that affects comparatively few workers that’s twenty years off, and for this we have to set a precedent that up-ends the entire system? This is worse than the Grand Bargain! Michael Hilzick:

What’s most irksome about the Congressional maneuvering is the ginned-up atmosphere of urgency around it. For even seriously impaired pension plans, the day of reckoning may be 10 or 20 years off; a lot can happen in that time frame to improve their condition or for other solutions to bubble to the surface.

As Rahm Emmanuel didn’t say, never let a non-crisis go to waste!

Third, Kline-Miller pits workers against each other, and in two ways. Reuters:

The legislation does prohibit benefit cuts for vested retirees over 80, and limited protections for retirees over 75 – but that leaves plenty of younger retirees vulnerable to cuts. And although workers and retirees would get to vote on the changes, pension advocates worry that the interests of workers would overwhelm those of retirees. (Active workers rightly worry about the future of their plans, and many already are sacrificing through higher contributions and benefit cuts.)

First, it’s wrong to have two-tier social insurance. There’s no reason citizens should get a worse deal because they’re younger (and any meaningful Social Security reform would make benefits age neutral. None of this “I’ve got mine” crapola). Second and worse, you can just see different groups of workers fighting over benefits like crabs in a bucket — 50% plus one taking the bigger slice of the shrinking pie. I bet the bosses will love that! This from California “liberal” Miller is one of the more cynical framings I’ve seen:

“We should give (workers) the opportunity and responsibility of trying to save their own pensions”

Yes, by fighting each other!

Fourth, Kline-Miller is a union-busting measure (and as we’ll see in a minute, that’s going to exacebate problems with other pensions). In These Times:

Jim Carothers, 69, a retired car-hauler from Redford, Mich. who currently gets benefits from the Central States Fund, is more blunt about the stakes.

“I think it would mean the complete death of the labor movement of this country. I don’t know how you would organize people and promise them anything if we get a contract,” Carothers says. “The question becomes, well, why would I join the union then if you can’t deliver what you’re promising? And that for the labor movement strikes me as an incredibly dangerous proposition.”

Exactly. What’s the point of a union contract if Congress can unilaterally retrade the deal after the fact? I thought contracts were supposed to be sacred. Or doesn’t that apply when workers are involved?

What Were the Alternatives to Kline-Miller?

First, there are options available, even accepting that legislation needed to be passed this sesson. Reuters:

[Randy DeFrehn of the National Coordinating Committee for Multiemployer Plans], AARP and other advocates reject the idea that solvency problems 10 to 15 years away require such severe measures. They have pushed alternative approaches to the problem; one that is included in the deal, DeFrehn says, is an increase in PBGC premiums paid by sponsors, from $13 to $26 per year. Advocates also have called for other new revenue sources, such as low-interest loans to PRGC by the once-bailed-out big banks and investment firms.

So why not have the sponsors pay the full freight? The workers already did! (Though I have to say that getting a loan strikes me as… .Well, let’s call it weak tea. Or weak TINA.)

Multiemployer plans are administered by unions and are funded by multiple employers in a given industry, typically in fields such as trucking, retail and construction. There are about 1,400 plans in all, covering roughly 10 million people. Because of declining ratios of active workers to retirees, and loose funding standards, some of the larger [Multiemployer plans], such as the Teamsters’ Central States fund, are in dire financial condition.

The national trend of de-unionization coupled with job losses from the recession have meant that fewer and fewer workers are paying into funds as more and more retirees are starting to receive benefits.

So, if the ratio between active workers and retirees has gone out of whack, why not strengthen unions so that there are more “active workers” signed up? Especially since the problem is 10 or 15 years away? Is there somereason a “liberal” California Democrat wouldn’t consider that? (Note above we show why Kline-Miller makes union membership less attractive, so it’s sending union pension actuarial conditions in exactly the wrong direction.)

Third, the think tank behind Kline-Miller is the National Coordinating Committee for Multiemployer Plans. Here’s their report. It’s titled:

“Solutions not Bailouts”

But what would be so very wrong with — work with me, here — just bailing the pension plans out? I can’t see why bailing out workers isn’t a solution. It certainly was for the banksters! International Business Times:

While Congress responded to the 2008 financial crisis by rescuing the banking industry with an $700 billion bailout [and that’s only TARP!], there’s no rescue on the way for retirees. Lawmakers are offering no bailout to close multiemployer plans’ aggregate $42 billion deficit.

Thomas Nyhan of the Central State Fund, too, says he’s been backed into a corner by political realities, and supports the NCCMP proposal out of his fiduciary duty to keep the plan solvent.

What’s baffling to me is why Nyhan — along with so many other Obama supporters and Democratic loyalists — don’t try to change “political realities.” Like Elizabeth Warren:

Washington already works really well for the billionaires and big corporations and the lawyers and lobbyists. But what about the families who lost their homes or their jobs or their retirement savings the last time Citi bet big on derivatives and lost? What about the families who are living paycheck to paycheck and saw their tax dollars go to bail Citi out just six years ago? We were sent here to fight for those families, and it’s time – it’s past time – for Washington to start working for them.

Indeed. But:

(To be fair, Google search has been crapified, and I’d be happy to be wrong on this.)

Come on, Democrats. Aren’t retirees with pensions “middle class families”? Or don’t they count? Can’t we stop playing small ball? There Is No Alternative — until there is!

[A CreditCards.com survey] found that a significant percentage of people don’t see an escape from debt. They believe they will die with it. The irony wasn’t lost on me that the survey was taken earlier this month as people piled on debt while holiday shopping.

So how do the two issues — the debt-until-I-die survey and pension battle — tie together?

We are increasingly on our own. Our retirement income is largely going to depend on how much we’ve managed to save and invest for ourselves.

Even those fortunate enough to still have traditional pensions should be making backup plans. You may very well not be able to rely on a once-ironclad agreement of a set and steady stream of income that would come faithfully until you die.

Your backup plan is to expect change. This means staying out of debt and getting rid of the debt you do have as soon as you can, including your mortgage.

So I’m not seeing gutting America’s pension system as a way to boost aggregate demand, that’s for sure. As Illargi says:

Create an account

Some interesting points in this article, amongst some gibberish. One thing is true, if possible, you should have a Plan B, because nothing is guaranteed, because most people are self-serving, and disclaimers to boot!!

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